Comparative advantage in the allocation of work among machines

Another NWLEAN post in response to Mike Thelen’s query on Laws of Nature, posted on 2/11/2011

On several occasions, I ran into the problem of allocating work among machines of different generations with overlapping capabilities. There were several products that could be processed to the same levels of quality in both the new and the old machines. The machines worked differently. For example, the old machines would process parts in batches while the new ones supported one-piece flow. But the resulting time per part was shorter on the new machines for all products. In other words, the new machines had a higher capacity for everything.

Given that the products were components going into the same assemblies, they were to be made in matching quantities per the assembly bill of materials and the demand was such that the plant had to make as many matching sets as possible. The question then is: how do you allocate the work among the machines?

When I first saw this problem, I thought it was unique, but, in fact, many machine shops keep multiple generations of machines on their floors and make parts in matching sets for their customers, and it is in fact quite common. The solution that maximizes the total output is to apply the law of comparative advantage from classical economics. Adapted to this context, it says that the key is the ratio of performance between the old and the new machines on each product. For example, if the new machine can do product X 30% faster than the old machine and product Y ten times faster, then the old machine is said to have a comparative advantage on product X, and you should run as much as possible of product X on the old machine.

It is a bit surprising at first, but easy to apply. What is more surprising is that so few plants do. The logic that is actually most commonly used is to load up the new machine with as much work as possible, on the grounds that it has a high depreciation and needs to “earn its keep.” What many managers have a difficult time coming to terms with is that what you paid for a machine and when you paid it is irrelevant when allocating work, because it is in the past and nothing you do will change it. You produce today with the machines you have, and the only thing that matters is what they can do, now and in the future.

The law of comparative advantage is taught in economics, not manufacturing or industrial engineering, and pertains to the benefits of free trade between countries, not work allocation among machines. The similarity is not obvious. This law is attributed to David Ricardo who published in 1817, based on an analysis of the production of wine and cloth in England and Portugal. Trade was free because, at the time, Portugal was under British occupation. Both wine and cloth were cheaper to produce in Portugal, but wine was much cheaper and cloth only slightly cheaper. England had therefore a comparative advantage on cloth, and the total output of wine and cloth was maximized by specializing England on cloth and Portugal on wine. You transplant that reasoning to your machine shop by mapping the countries to machines and costs to process times.

This simple approach works in a specific context. It is not general, but is of value because that context occurs in reality. The literature on operations research is full of more complicated ways to arrive at solutions in different situations. There is an article from IE Magazine in July, 2006 that I wrote about this entitled “Not-so-basic equipment: the pitfalls to avoid when allocating work among machines.” It used to be available on line for free on the magazine’s web site. Now you have to buy it on Amazon to download it.